Large-cap stocks are trendy investment choices. These are shares from companies with a market capitalisation of more than Rs 20,000 crore. Large companies are financially stable and can handle economic crises better. But before investors buy these shares, they must grasp large-cap meaning, features, and drawbacks.
This article covers
- • What are large-cap stocks?
- • Features of large-cap stocks
- • Reasons to invest
- • Who should invest
- • Advantages and drawbacks
What are large-cap stocks?
Companies are divided by their market capitalisation size as large-cap, mid-cap, and small-cap. Large-caps are companies with a market capitalisation of Rs 20,000 crore and more. These are stocks of well-established companies that have a dominant market share.
Market capitalisation estimates a company’s total worth by multiplying the share price with the total number of outstanding market shares.
SEBI has identified 100 large-cap businesses based on their market capitalisation, which are listed on the stock exchanges from 1 to 100. Many large-cap stocks pay regular dividends and are suitable for investors looking for passive income.
Features of large-cap stocks:
Standard features of large-cap stocks are as follows.
These companies are well-established and financially stable with an extensive supply chain network. They remain consistent during economic cycles.
Large-cap firms have robust balance sheets and publish their financial details periodically. Investors can assess these reports to analyse investment decisions.
Large-cap companies are in the business for a longer time. Investors have more data available on their actions and financial activities.
Preferred by asset managers:
Mutual funds prefer to invest in large-cap stocks to balance risk exposure and improve returns. These stocks have higher liquidity and trade regularly on the bourses.
Many investors prefer large-cap stocks because their values increase with time. These companies pay regular dividends, creating passive income for investors.
Compared to mid-cap or small-cap stocks, large-cap stocks are costly because they are more discoverable and enjoy higher demands.
How to evaluate large-cap stocks:
The large-cap company category consists of various businesses, some of which have made it to large-cap from small-cap, while others have established themselves as large-cap from the beginning. But a common factor is that all these companies have remained in the industry for a long time and maintained trackable records. All these companies have
- • Visible competitive edge
- • Strong brand recognition
- • Proven leadership
- • Performance record
Reasons to invest in large-cap:
- • If you have an investment horizon of five years or more and prefer low volatility, then large-cap stocks are a good fit.
- • If volatile growth stocks dominate your investment portfolio, adding a few stable large-cap stocks is smart.
- • Another way to invest in large-cap stocks is through ETFs and mutual funds.
Although these stocks are widely traded and known, you might still have to research them before investing.
Who should invest in large-cap:
You may consider investing in large-cap stocks if you are a first-time investor. These stocks are discoverable, stable, and comparatively low-risk than mid-cap and small-cap shares.
If you are a low-risk investor, then large-cap stocks are your best bet to grow your wealth without exponentially increasing risk exposure.
If you want to earn a steady income from your investment, buy large-cap stocks that pay regular dividends.
Large-cap stocks help investors add stability, diversification, and liquidity to their portfolios.
Advantages and drawbacks of large-cap stocks:
|You can diversify your portfolio across industries.||Although these companies are stable, they take more time to rebound during economic uptrends unlike mid-cap and small-cap businesses.|
|These companies enjoy dominant positions in the market and are usually low in debt.||These stocks are more suitable for short-term investments.|
|They have high liquidity; trade daily on the bourses.||Mid and small-cap stocks generate higher returns against higher risk than large-cap stocks.|
We hope we have answered your question: ‘ what is large-cap?’. During investing, research each stock before adding it to your portfolio and invest according to your goals. For more investment topics, keep following Angel One’s website.
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